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http://www.adage.com/news.cms?newsId=36528. Group Ten Presents: http://www.adage.com/news.cms?newsId=36528. Emory Redd Abby Weaver George Chambers. eBay Outline: Group 10. Consumers Budget Lines : Weaver Law of Diminishing Marginal Utility: Weaver Advertising: Weaver

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Group ten presents http www adage com news cms newsid 36528 l.jpg
Group Ten Presents:http://www.adage.com/news.cms?newsId=36528

Emory Redd Abby Weaver George Chambers


Ebay outline group 10 l.jpg
eBay Outline: Group 10

  • Consumers Budget Lines : Weaver

  • Law of Diminishing Marginal Utility: Weaver

  • Advertising: Weaver

  • Opportunity Cost: Weaver

  • Monopoly: Redd

  • Human Capital: Redd

  • Financial Markets: Redd

  • Supply/Demand of eBay: Chambers

  • Marginal Revenue: Chambers


History of ebay l.jpg

History of eBay

Founded in 1995 by Pierre Omidyar

Bills itself as “The world’s online market place”

“Our mission is to build an online marketplace that enables practically anyone to trade practically anything anywhere in the world”

1998: 300,000 users; and $200 million in gross merchandise sales

2002: 42,000,000 users; $9 billion gross merchandise sales


Does ebay chan g e consumers budget lines l.jpg

Does eBay change consumers budget lines?

A decrease in the price leads to either a rightward rotation of the budget line or causes the budget line to rotate upward, leaving the horizontal intercept unaffected.

When the price of a good changes,

the budget line rotates:

Both it's slope and one of its

intercepts will change.


Utility and marginal utility l.jpg

utility is the pleasure or satisfaction obtained from consuming goods and services.

Marginal utility is the change in utility an individual enjoys from consuming an additional unit of a good.

As consumption rises, so does total utility.

Marginal utility falls as consumption rises, indicating that each additional unit provides less additional utility than the previous unit did.

Utility and Marginal Utility


Law of diminishing marginal utility l.jpg
Law of Diminishing Marginal Utility consuming goods and services.

  • As consumption of a good or service increases, marginal utility decreases.

    Survey Results: satisfaction and usage will increase as eBay becomes more popular.


Slide8 l.jpg

To the Consumer: consuming goods and services.

* time spent searching for an item

* time spent waiting for the bid to end

* shipping costs

* mailing time

To eBay:

* eBay relocated to Delaware in April 1996 to avoid the high taxes that California was charging. All of the money spent moving could have been used better elsewhere.

Opportunity Cost


Slide9 l.jpg

Amazon.com CEO consuming goods and services.Jeff Bezos

Singing Dancing"Do It eBay" Guy

Advertising

  • In 1999, eBay paid AOL $79 million to promote its auction site

  • After which eBay reported $24.6 million in cash earnings

  • In 2002, sales and marketing expenses for eBay totaled $73.1 million, or 30% of net revenues.

  • The actor on the eBay commercial resembles Jeff Bezos, Amazon’s CEO


Human capital l.jpg
Human Capital consuming goods and services.

Employees have both General and Specific Human Capital

General Human Capital

Knowledge or training beneficial to many firms

Specific Human Capital

Knowledge or training beneficial to only one firm


Human capital11 l.jpg
Human Capital consuming goods and services.

Example

Meg Whitman, CEO of eBay

  • Previously a Hasbro marketing director

  • This is Specific Human Capital


Human capital12 l.jpg
Human Capital consuming goods and services.

continued

Meg Whitman, CEO of eBay

  • Economics degree from Princeton

    MBA from Harvard

  • These are examples of General Human Capital


Is ebay a monopoly l.jpg
Is eBay a Monopoly? consuming goods and services.

  • eBay has a few direct competitors

    -Yahoo Auctions

    -Amazon.com

    -Many specialized Auction sites

  • Cost of entry into the eBay’s market is low.


Is ebay a monopoly14 l.jpg
Is eBay a Monopoly? consuming goods and services.

  • “We expect competition to intensify in the future as barriers to entry into these channels are relatively low, as current offline and new competitors can easily launch online sites at nominal costs using commercially available software”

    - eBay 2002 annual report


Is ebay a monopoly15 l.jpg
Is eBay a Monopoly? consuming goods and services.

  • eBay’s competes directly with anyone who offers shop-at-home service

  • eBay competes indirectly with any retailer of similar goods


Is ebay a monopoly16 l.jpg
Is eBay a Monopoly? consuming goods and services.

Characteristics of eBay’s market:

  • A heterogeneous product

  • A downward sloping demand curve

  • A large number of participants

  • Easy entrance and exit

    It’s a Monopolistic Competition


Financial markets l.jpg
Financial Markets consuming goods and services.

Stock prices and demand curves

  • Shares of stock are scarce

  • The supply of eBay shares is fixed

    P

    s

    Q


Financial markets18 l.jpg
Financial Markets consuming goods and services.

  • The demand shifts to the left or right

    P s

    d

    Q

  • Closing price (4.14.03) : $87.74

  • 52-week range: $49.25 - $91.41

  • 5 Year range: $4.21 – $127.50

  • What causes the demand curve to shift?


Financial markets19 l.jpg
Financial Markets consuming goods and services.

Causes of demand curve shift

  • Analyst Reports

  • Annual and Quarterly Reports

  • In practice, market price fluctuations are not traceable to any one thing


The law of supply l.jpg

As P increases, so does Q consuming goods and services.

Directly proportional

The Law of Supply

P

S

Q


The law of supply21 l.jpg
The Law of Supply consuming goods and services.

  • The supply continues to increase

  • More and more sellers


Ceteris paribus factors for supply l.jpg
Ceteris Paribus Factors for Supply consuming goods and services.

  • Input Prices

  • Number of Sellers

  • Expectations of sellers

  • Prices of Alternative Goods

  • Technology


A shift of the supply curve l.jpg

change in nonprice determinants consuming goods and services.

Shift to the right increases supply, shift to the left decreases supply

A Shift of the Supply Curve

P

S

S2

S1

Q


The law of demand l.jpg

As P increases, Q decreases consuming goods and services.

Inversely proportional

The Law of Demand

P

D

Q


The law of demand25 l.jpg
The Law of Demand consuming goods and services.

  • With increasing reserve prices, the demand for eBay products decreases


Ceteris paribus factors for demand l.jpg
Ceteris Paribus Factors for Demand consuming goods and services.

  • Income

  • Number of consumers

  • Expectations of buyers

  • Prices of related goods

  • Tastes


A shift of the demand curve l.jpg

Change in nonprice determinants consuming goods and services.

Shifts to the right increase demand, shifts to the left decrease demand

A Shift of the Demand Curve

D2

P

D

D1

Q


Supply demand market l.jpg

Together, supply and demand form a market with an equilibrium price

The market for eBay is imperfectly competitive

Supply + Demand = Market

S

P

E

D

Q


Equilibrium l.jpg
Equilibrium equilibrium price

  • Once equilibrium is established, it will remain there unless an external factor changes

  • When things change, they either effect supply or demand resulting in a new equilibrium


Example of equilibrium change l.jpg

An increase in supply causes new equilibrium with higher prices

Example of Equilibrium Change

P

S

D1

D

Q


Profit maximizing l.jpg

What is the main goal for a firm like eBay? prices

To maximize profits

Two kinds of Profit

Accounting Profit

Total revenue minus accounting costs

Economic Profit

Total revenue minus all costs of production

Profit Maximizing


Which profit is more important l.jpg
Which Profit is More Important? prices

  • Understanding economic profit helps better understand the firm’s actions

    • If you understand economic profit, it is possible to understand why eBay uses price discrimination


What output level should ebay operate at l.jpg

Where marginal cost equals marginal revenue prices

Where the MC and MR curves intersect

Operating at this level will maximize profits

What output level Should eBay Operate At?

DOLLARS

MC

2.7 Billion

MR

Output


Price discrimination l.jpg
Price Discrimination prices

  • eBay also uses price discrimination to maximize profits

    • eBay incurs the same costs for everything they post to be sold, but charge different rates to the sellers


Conclusion l.jpg
Conclusion prices

eBay has become the number one auction site. It has 5.6 million registered users and more than 12 million items for sale at any one time. In 1999, they moved $2.7 billion in merchandise revenue which nearly doubled Amazon’s $1.4 billion. eBay has been on its way up since they first started in 1995. It has successfully reached the top and continues to grow.



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